FIDIC Red Book 2017

A MENA perspective
On 5 December 2017, over 17 years after the 1st edition, the
International Federation of Consulting Engineers (FIDIC)
published the second editions of its Rainbow Suite of
contracts. In a contractual landscape that has traditionally
been dominated by the older FIDIC 87 Red Book, the new
“Red Book” will be of particular interest to those operating
in the Gulf region.

Headlines:
• A philosophy that is broadly similar to the pre-release version of the Yellow
Book 2017.
• 1st Edition risk profile is generally maintained.
• Generally less flexible, more complex and less user friendly.
• 50% longer than the 1st Edition.
• Expanded role and powers for the Engineer.
• Exceptionally prescriptive drafting, such as new definitions and “step-by-step”
procedures, resulting in a greater administrative burden on the Contractor and,
in principle, additional costs for the Employer.
• New time limits which if not met, trigger deeming provisions.
• Symmetry between the Contractor’s and the Employer’s rights and obligations.
• Provisions to promote collaboration between the parties.
• Enhanced (and separate) claims and disputes provisions, including the
introduction of the new standing “Dispute Avoidance / Adjudication Board”
(DAAB) and a focus on early dispute avoidance.

This document considers some of the key changes to the Red Book that users in
the Gulf will need to be alive to, both from a risk perspective and also in terms of
contract administration.

Although this note considers the Red Book in the context of the laws of the
United Arab Emirates (UAE), the short commentary is broadly interchangeable
with the other GCC states, except Saudi Arabia. A commentary on the additional
considerations for Saudi Arabia is included in a section on the final page.

All quoted extracts from UAE laws are translated from the official Arabic and
should be treated with the appropriate caution.
Contractor
General Obligations (Cl. 4.1) The Red Book simplifies the
Contractor’s core obligation: the Contractor shall execute the
Works in accordance with the Contract. There is no reference
to or acknowledgement of principles of good faith, mutual
intentions or other elements of applicable laws in the Gulf.
If the Contract specifies that the Contractor shall undertake
any design, the resulting obligations have been expanded
and now include an undertaking that the design and the
Contractor’s Documents comply with the technical standards
stated in the Specification and the Laws (in force when the
Works are taken over) and otherwise are in accordance with
the documents forming the Contract.
Contractor’s Documents (Cl. 4.4) Construction cannot
commence until the Engineer has (or is deemed to have)
issued a Notice of No-objection in relation to the Contractor’s
Documents. The Contractor’s obligations to provide As-Built
Records and Operation and Maintenance Manuals have been
expanded and are now set out separately in cl. 4.4.2 and 4.4.3.
Quality Assurance (Cl. 4.9) The Contractor is required to
prepare and implement:
• a quality management system (QMS), and
• a compliance verification system (CVS).
The Contractor shall conduct internal audits of the QMS, with
reports to the Engineer and submit a complete set of CVS
records in a manner acceptable to the Engineer.
Programming (Cl. 8.3) The programming requirements have
been expanded to include additional details that must be
included in each programme, including logic links, float and
critical path; contractors will need to consider the increased
costs of complying with such requirements at tender stage.
Furthermore, nothing in any programme will relieve the
Contractor from any obligation to give a contractual notice
under the new Conditions, reducing the scope for reliance on
programmes as notice of claims for delay.
Extension of Time (Cl. 8.5) The Contractor is not required to
provide a separate notice of a claim for an extension of time
for a delay caused by a Variation. The mechanism for dealing
with the time consequences of a Variation has, instead, been
rolled into the Variation procedure.
In a major departure from the 1st edition, the Contractor
has an express entitlement to an extension of time for an
increase of more than 10% in the estimated quantities, if this
causes delay.
The Parties are prompted to adopt rules and procedures
dealing with concurrent delay by means of the Special
Provisions (formerly referred to as Particular Conditions).
Parties in the UAE are free to provide by agreement for the
manner in which concurrent delay will be dealt with. In
the absence of a prevention principle, a “but for” test or
“dominant cause” theory under UAE law, apportionment is
often considered to be the appropriate solution.
Taking Over (Cl. 10.1) The Works will not be considered
complete for the purpose of taking-over unless the Engineer
has (or is deemed to have) issued a Notice of No-objection
to the As-Built Records and Operation and Maintenance
Manuals under cl. 4.4 and the training under cl. 4.5 has been
completed in accordance with the Specification.
Costs of Remedying Defects (Cl. 11.2) The Contractor is
responsible for remedying defects that arise from improper
operation and maintenance which was attributable to
matters for which the Contractor is responsible (i.e. As-Built
Records, Operation and Maintenance Manuals and Training).
Variations (Cl. 13.3) A clearer distinction is made between the
two methods for initiating a Variation:
• Variation by Instruction, and
• Variation by Request for Proposal.
The former is by far the most common in the Gulf and
now requires the Contractor to submit detailed particulars
comprising the work, resources and methods to be adopted;
a programme for execution of the Variation; a proposal
for modifying the Programme and Time for Completion; a
proposal for modifying the Contract Price, with supporting
particulars; and the amount of any time related costs. It is
likely that a large commercial team will be required in order
for the Contractor to comply with these requirements.
Design Risk (Cl. 17.4) A new indemnity has been inserted
requiring the Contractor to indemnify the Employer against
all errors in the Contractor’s design (if applicable) which
result in the Works not being fit for purpose. Importantly, the
exclusion of indirect or consequential loss and the aggregate
cap on liability under cl. 1.15 applies to this indemnity,
limiting the Contractor’s liability in this regard.
Liability Caps (Cl. 1.15) Delay damages and indemnity
liabilities relating to intellectual property rights have been
carved out from the exclusion of indirect or consequential
loss. Concepts of “indirect” and “consequential” loss remain
undefined. “Gross negligence” has also been carved out from
the aggregate cap. Although this concept has no specific
meaning in UAE law, it is consistent with laws which prohibit
any exclusion or limitation of liability for fraud or gross
mistake, or delict (acts causing harm, analogous to a tort).
 3

Similarly, liability arising from a mandatory provision of law

is not capable of being excluded by contract. Importantly,
a Contractor and Engineer are subject to decennial liability
obligations as a matter of law notwithstanding this clause.

Employer
Financial Arrangements (Cl. 2.4) The Employer’s financial
arrangements shall be detailed in the Contract Data. As the
corresponding provision in the first edition, which required a
request from the Contractor to trigger disclosure, is typically
deleted, the new default provision is unlikely to usher in a
new era of transparency in the Gulf.

Liability for Care of the Works (Cl. 17.2, 17.5 & 17.6) The
categories of what used to be referred to as ‘Employer’s
Risks’ have been expanded and now also include any act
or default of the Employer’s Personnel or other contractors.
Clause 17.2 addresses concurrency for the second time, and
consistent with the less prescriptive approach of UAE law,
permits apportionment of loss or damage resulting from
a combination of an Employer-risk event and a cause of
damage for which the Contractor is liable.

Indemnities (Cl. 17.5) The Employer’s indemnities in favour

of the Contractor have now been expanded to include loss of
or damage to property attributable to any negligence, wilful
act or breach of contract by the Employer, the Employer’s
Personnel, or any of their respective agents. The Employer
is also now required to indemnify the Contractor in respect
of all claims, damages, losses and expenses in respect of
damage to or loss of property to the extent such damage
arises from an event for which the Employer is liable
under cl. 17.2. Both parties’ liability under the indemnity
provisions will be reduced proportionately to the extent
an event for which the other party is responsible has
contributed to the loss.

EOTs (Cl. 4.15 & 8.5) The Contractor’s entitlement to

extensions of time has been expanded to grant relief where
the non-suitability or non-availability of an access route
arises as a result of changes to that access route by a third
party after the Base Date. The extension of time entitlement
as a result of delays caused by public authorities has been
extended to include delays caused by private utility entities
such as DEWA or Empower.

Latent Defects (Cl. 11.10) The 1999 Red Book was silent
on latent defect liability (save to say that each Party shall
remain liable for unperformed obligations following issue of
the Performance Certificate) and so the Contractor’s liability
would be subject to the governing law approach. Under the
2017 Red Book, the Contractor’s lability for latent defects
in Plant shall cease two years after expiry of the Defects
Notification Period except if prohibited by law (or in any
case of fraud, gross negligence, deliberate default or reckless
misconduct). This provision is subject to the application of the
mandatory prohibition on adjusting statutory prescription
periods under UAE law.
Profit (Cl. 1.1.20, 13.3 & 15.6) Whilst the 1999 Red Book
entitles the Contractor to recover Cost Plus Profit for various
relief events, the amount of profit recoverable under the
2017 Red Book is now set at a default sum of 5% in most
circumstances. The Contractor is also now expressly entitled
to recover lost profit where Works are omitted or where the
Contract is terminated for convenience, although the margin
of profit is not stipulated. This is likely to comprise loss of
profit that the Contractor would have earned on performing
or completing the works, a type of loss that is capable of being
and is in practice awarded by courts under UAE law.
Exceptional Event (Cl. 18) Force majeure is renamed as
the more neutral “Exceptional Event”, though the risk
allocation remains the same. In common with other civil law
jurisdictions force majeure is a recognised concept in the UAE
and, therefore, renaming force majeure is more likely to cause
confusion than add clarity.
Engineer
Engineer (Cl. 3) The Engineer’s role is expanded and
enhanced. This is consistent with the high esteem in which
the engineering profession is held by the region’s owners
and developers.
Qualifications (Cl. 3.1) A new requirement for the Engineer
to be a professional engineer prevents other construction
professionals ousting FIDIC’s members from this key
project role.
Engineer’s Duties and Authorities (Cl. 3.2) The Employer is
prohibited from imposing an obligation on the Engineer to
obtain consent before issuing a determination in respect of a
matter or claim. This is contrary to common practice in the
Gulf and is likely to be amended.
Engineer’s Determination (Cl. 3.7) The Engineer must act
“neutrally” and, in a departure from the previous edition (and
the position at law), the Engineer is not deemed to act for the
Employer when making a determination of a matter or claim.
In a positive move towards a collaborative approach in
resolving claims in real time, the 2017 Red Book introduces
a procedure for consultation to reach agreement, with the
Engineer at its heart. Unfortunately, this is offset by a complex
process that creates a procedural minefield for all parties.
Thus, if the Parties cannot agree a matter or Claim within
42 days and the Engineer fails to issue a ‘fair determination’
within a further 42 days, then either the Engineer is deemed
to have rejected the Claim; or
in the case of any other matter, it is deemed to be a Dispute
which either Party can refer to the DAAB without the need for
a Notice of Dissatisfaction (NOD). If either Party objects to a
determination, it must issue a NOD within 28 days, otherwise
the determination shall be deemed final and binding. If either
Party fails to comply with an agreement of the Parties or
a final and binding determination, the other Party may
refer the failure directly to arbitration for enforcement by
expedited procedure.
Meetings (Cl. 3.8) In what appears to be a further nod in
the direction of collaborative working, the Engineer or the
Contractor can summon each other (but not the Employer,
who may attend voluntarily) to a management meeting.
Notices and claims
The notice provisions have been significantly re-worked in
the 2017 Red Book, resulting in a more prescriptive and more
complex set of obligations on the Contractor and, to a lesser
extent, on the Employer.
In what might be considered a backward step, notice
requirements now appear in approximately 80 places in the
2017 Red Book. ‘Notice’, ‘Claim’ and ‘Dispute’ are now all
defined, creating a high probability of lengthy disputes about
the effect and application of these provisions.
Notices (Cl. 1.3) A Notice must be in writing and identified
as a Notice (but does not need to refer to the clause under
which it is issued). Contractors will need to ensure they have
adequate resources to comply with these requirements. A
“Notice of No-objection” replaces approvals and consents,
which will resonate with those seeking to limit their
accountability under the contract.
Advance Warning (Cl. 8.4) Advance warning provisions have
been introduced requiring each Party to advise the other of
any known or probable future events which may adversely
affect the performance of the Works, increase the Contract
Price or delay the execution of the Works. There is no time
limit or explicit sanction for failure to issue an advance
warning. Contractors should expect Employers to address
this with amendments reducing the Contractor’s entitlement
to relief where they fail to issue an advance warning.
The provision is coupled with the Engineer’s entitlement to
require the Contractor to submit estimates of the anticipated
effects of future events or proposals for mitigating their effect.
This may resemble the introduction of an overarching duty to
mitigate loss or delay which is conceivably otherwise derived
from, and consistent with, the duty of good faith under the
UAE Civil Code, Article 246(1). However, the preparation of
additional estimates or proposals could be time consuming
and costly, and potentially could be built into increased
tender prices.
 5
5

Cessation of Employer’s liability (Cl. 14.14) Contractors
must take care to include all claims in the Statement on
Completion (except for those arising after the issue of the
Taking-Over Certificate), Final Statement or any Partially
Agreed Final Statement, whether such claims have been
referred to the DAAB or have had a NOD issued in relation
to them, otherwise the Employer will avoid any liability for
them. In addition, the Contractor only has 56 days to dispute
the Final Payment Certificate (FPC) under cl. 20.2 otherwise
the Contractor will be deemed to have accepted the amounts
and the Employer shall have no further liability. Contractors
will need to take extra care to ensure all claims are captured
in their statements and that the 56 day time bar for disputing
the FPC is not missed.
Termination (Cl. 1.16, 15.2 & 16.2) Additional termination
rights have been added for both Parties, the most important
being that either has a right to terminate if the other fails
to comply with a binding agreement or final and binding
determination of the Engineer or a decision of the DAAB
and such failure constitutes a material breach. Clause 1.16
attempts to deal with a particular difficulty which arises
from provisions of the UAE Civil Code which could be read to
require that termination of a construction contract requires
mutual consent or a court order. It provides that unless
such provisions are mandatory, the contractual termination
mechanisms will prevail.
the Engineer to consider their position
and allow the late submission if it is
justified in the circumstances.
Both Parties should however be careful
to ensure they comply with the relevant
timeframes under cl. 3.7 and 20. The
UAE federal law provides in relation to
a commercial contract that “whatever is
agreed between the two parties shall apply”
(Code of Commercial Practice,
Article 2). Likewise, a party to a civil
contract must “perform that which
he obliged to do under the Contract”
(UAE Civil Code, Article 243(2))
In principle and in practice,
the UAE courts apply the
agreement of the parties
as recorded in writing.

Claims (Cl. 20) The Claims provisions have been redrafted and
separated from the Dispute provisions.

The 1999 FIDIC 28-day time-bar on notification of Claims

that always applied to Contractors now also applies to all
Employer claims. FIDIC has also increased the timeframe for
provision of the Fully Detailed Claim to 84 days.

If a Party’s Notice of Claim or Fully Detailed Claim is not

submitted within the set timeframes, the Notice of Claim
will be invalidated and the claiming Party time-barred. The
effect of time bar provisions on entitlement is often a source
of controversy on projects in the UAE. The requirement
operates as a condition precedent: a compliant Notice is
required for an entitlement pursuant to the Contract to
arise. If the entitlement is damages for breach of contract
or an entitlement at law, such claims potentially bypass the
condition precedent. The time bar provisions would then
potentially be exposed to challenges derived from principles
of contract interpretation and restrictions on the scope of
liability limitation or exclusions taken from the Civil Code.

Consistent with this, there is a deemed validation

procedure if the Engineer fails to notify the claiming
Party that it is outside the relevant timeframe and also
a mechanism by which the Party can challenge
the invalidity of its Notice of Claim, requiring
Disputes and arbitration
“Dispute” (Cl. 1.1.29) A “Dispute” is now defined. Failure by
the respondent party or the Engineer to oppose or respond to
a claim in whole or part may constitute a rejection of claim
(thereby crystallising a “Dispute”) if in the circumstances
the DAAB or an arbitrator deem it reasonable to do so.
The definition is far from straightforward and will inevitably
lead to disputes about what constitutes a “Dispute”. Disputes
have been “hived off” to their own chapter (Clause 21) of the
contract.
The “DAAB” Amendments to the new “Dispute Avoidance /
Adjudication Board” (DAAB) provisions have been made to
promote good contract management. Key changes include:
• The DAAB is appointed as a standing board with a
dispute avoidance function. The DAAB may now provide
‘informal assistance’, if the parties jointly request it,
under new ‘Avoidance of Disputes’ provisions. The parties
are not bound to act on the DAAB’s advice and the DAAB
is not bound in any future dispute by views given during
this informal process. This process is not available when
the Engineer is making a determination.
• A 42-day time bar applies to the reference of disputes to
the DAAB following the issue of a NOD in relation to an
Engineer’s determination.
• A 28-day time bar applies to the issue of a NOD following
a determination by the DAAB: otherwise the DAAB’s
decision shall become final and binding. However,
there is no time bar to referring disputes to arbitration
following issue of such a NOD.
• A party may refer a failure to comply with any DAAB
decision directly to arbitration, and the arbitral tribunal
is granted the power to order the enforcement of
that decision. There is a question as to whether an
award endorsing a DAAB decision without reviewing
the underlying merits could withstand a challenge to
enforcement based on the public order ground that
justice must be administered only pursuant to processes
that have statutory recognition.
Whilst these amendments are welcome, DAB clauses are
commonly struck out of construction contracts in the Gulf
notwithstanding that this cuts across FIDIC’s Golden Principle
No. 5 which requires that “all formal disputes must be referred to
a Dispute Avoidance Board for a provisionally binding decision as
a condition precedent to arbitration.” In the absence of sanctions
that attach to any “breach”, the principle constitutes only
guidance on modifying FIDIC conditions rather than a
requirement to which the parties must adhere.
Amicable settlement (Cl. 21.5) This provision mirrors Clause
20.5 of the 1999 Red Book but the time period for amicable
settlement has been reduced from 56 days to 28 days.
Arbitration (Cl. 21.6) ICC arbitration has been retained. The
routes to arbitration are four-fold:
(i) issue of a NOD followed by an attempt to amicably
settle the Dispute;
(ii) any failure to comply with a DAAB decision;
(iii) any failure to comply with an agreement or a final and
binding determination of the Engineer; or
(iv) no DAAB has been put in place.
In an attempt by FIDIC to incentivise parties to utilise the
DAAB procedure, the arbitrator(s) may now take account of
the extent to which a party has failed to cooperate with the
other party in constituting a DAAB in making an award on
costs. The arbitrators have a power to open up an Engineer’s
determination or DAAB decision relevant to a Dispute unless
the determination or decision is final and binding. Any award
requiring payment from one party to the other is immediately
due and payable without further certification or Notice.
 7
7

Key considerations for Saudi Arabia

Legal interpretation of the 2017 Red Book in Saudi Arabia
requires separate consideration because the KSA has a
fundamentally different legal system to all of the other GCC
states. While all GCC states have a civil code that is derived
from Islamic Law / Shari’ah (including specific chapters for
construction-type contracts), KSA law requires contracts to
be interpreted by reference to the underlying Shari’ah. This
means that principles set out in extracts from the Qur’an,
the Sunna and related jurisprudential texts will be applied
directly to the clauses of the 2017 Red Book.

In short, the 2017 Red Book used on Saudi projects is likely

to result in a slightly different risk allocation for contractors
than the same contract being used in other GCC states.
One example of this is the detailed notice requirements
set out in the new Red Book. These would seem to offend
the Shari’ah principle than “a just claim never dies” and
therefore claims that would otherwise exist under Shari’ah
(which importantly may not be all claims under the
contract) may not be limited by notice clauses. Also the
reference to set percentage of profit may not be enforceable
in KSA, in so far as Shari’ah does not permit the recovery
of compensation that is uncertain or speculative. Binding
determinations by the Engineer or decisions of the DAAB
that give rise to termination rights are also likely to be
problematic.

That said, it is likely that the 2017 Red Book will be

embraced in Saudi Arabia. The Saudi government is
pursuing an unprecedented program of economic and social
change at present, at the heart of which is its Vision 2030
program. One aspect of this is the new Government Tenders
& Procurement Law likely to come into force in 2018 and the
new standard form contracts that are prescribed for use by
government departments. It is very likely that the 2017 Red
Book will influence the development of such standard forms
and that many of the principles set out in this paper will
become common practice in the Kingdom.
 Your contacts

Michael Grose Matthew Heywood

Partner Partner
D: +971 4 384 4544 D: +971 4 384 4138
E: michael.grose@clydeco.com E: matthew.heywood@clydeco.

Ben Cowling Alexa Hall

Partner Senior Associate
D: +966 11 253 2111 D: +971 4 384 4872
E: ben.cowling@clydeco.com E: alexa.hall@clydeco.com

45+ 3,600
Offices Total staff

1,500 390
Lawyers Partners

Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from
acting as a result of material contained in this summary. No part of this summary may be used,
reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP.

Clyde & Co LLP is a limited liability partnership registered in England and Wales.
Authorised and regulated by the Solicitors Regulation Authority.

© Clyde & Co LLP 2017

w: www.clydeco.com

December 2017